A new infrastructure fund launched on the London Stock Exchange by private equity firm Cabot Square Capital is seeking at least £200 million ($262.3 million; €237.8 million) to invest in both infrastructure assets and asset managers.
Cabot Square this week announced its intention to launch the ALTS fund, which it said in a statement would represent “a new model for investors to access returns from investing directly in attractive infrastructure”. The firm says its plan to invest in both managers and assets ensures it can aim for long-term returns of 8-10 percent, rather than 6-8 percent, according to Keith Maddin, fund manager and partner at Cabot Square.
“By investing in managers, you can build something with relatively low levels of investment but you can build lots of different capabilities,” Maddin told Infrastructure Investor. “You can build specialists so you can go into particular niches. By putting asset managers in the same fund as the assets, those investors get to capture the significant value that’s being created in those managers.”
Maddin added that the firm has been working on this product for about 15 months and that it has exclusive terms agreed to with two managers working in renewables and sustainable infrastructure. The fund is not limited in its geographic scope but is focused on the UK and Europe.
Maddin said it would look to build managers in a similar vein to when the company founded UK infrastructure manager Equitix in 2007, which he said was founded with about £15 million in investment. It was sold to Tetragon Financial Group in 2014 for £160 million and now has about £4 billion of assets under management and has raised five funds.
Another element of the ALTS strategy is to invest in unsubsidised Spanish solar assets, going into projects at shovel-ready stage. Maddin rejected a similar strategy for the UK, where he believes such assets are “fully priced”. However, the fund does plan to provide short-term loans to UK-based renewable energy assets, while it will also assess battery investments and property.
“It’s increasingly difficult to make the returns that investors want by just investing in a single class or a single type of infrastructure asset,” explained Maddin. “With our strategy, you have more ability to keep finding niches and assets that meet your targeted returns.”
Cabot Square said it already has non-binding commitments from three investors totalling £40 million. Maddin declined to identify them but said they comprise a global multi-asset manager, private wealth manager and a renewables-focused asset manager. While ALTS can raise up to £250 million from the initial offering, a placing programme of 500 million additional shares in the 12 months following will be instigated.